When countries go bust
September 6, 2010 8:38 PM Subscribe
posted by storybored (61 comments total)
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Sovereign debt issued by governments is immense. In 2009, worldwide sovereign debt exceeded $34 trillion and is now the largest risk to the global financial system. Many of the potential problems and risks are surprising, even to those well-versed in their particular area of finance. What happens if Things Go Really Bad?
...out of the multitude of potential scenarios, I have settled upon one which is really bad, but doesn’t involve asteroids, mass extinctions, or apes taking over. It is consistent with prior bad episodes of sovereign debt default.
Here is the Really Bad scenario. It’s not a worst possible scenario. It is more like the Long Depression or the Great Depression reoccurring under 2010 conditions.
In the Really Bad scenario, 45% of the countries with large outstanding sovereign debts are in default within a 2-3 year period."
A five-part article series on the imminent dangers of sovereign default from a guest columnist at Calculated Risk blog
. Some of this strays into finance ubernerd territory but Part 5C in particular is the likely the playbook for the next financial crisis
Sovereign defaults are the tsunamis of the financial world. Here's a chart of the countries most likely to default in the next five years.
And another one of the biggest debtors
measured against GDP.
Part 1: How Large is the Outstanding Value of Sovereign Bonds?
Part 2. How Often Have Sovereign Countries Defaulted in the Past?
Part 2B: More on Historic Sovereign Default Research
Part 3. What are the Market Estimates of the Probabilities of Default?
Part 4. What are Total Estimated Losses on Sovereign Bonds Due to Default?
Part 5A. What Happens If Things Go Really Badly? $15 Trillion of Sovereign Debt in Default
Part 5B. What Happens If Things Go Really Badly? More Things Can Go Badly: Credit Default Swaps, Interest Swaps and Options, Foreign Exchange
Part 5C. Some Policy Options, Good and Bad
Part 5D: European Banks, What if Things Go Really Badly?